Construction data casts positive outlook on 2014

Published: 03 January, 2014

There is a positive outlook for construction activity in 2014, according to the latest Markit/CIPS purchasing managers index (PMI).

The index shows that UK construction companies remained in expansion mode at the end of 2013, as highlighted by relatively sharp rises in output, new orders and employment during the latest survey period. Survey respondents anticipate an increase in business activity over the course of 2014, with the proportion of firms forecasting growth (57%) well above those that expect a decline (10%).

Adjusted for seasonal factors, the PMI was down only slightly from November’s 75-month peak. At 62.1 in December, from 62.6 in the previous month, the index was well above the 50.0 value that separates expansion from contraction. Moreover, the most recent reading marked eight months of continuous output growth in the UK construction sector.

Other findings include:

Residential activity remained the fastest growing area of construction, but it was also the only category to post a slower pace of expansion than in November. Meanwhile, work on commercial projects rose at the steepest rate since August 2007 and civil engineering activity increased at the same pace as that reported in the previous month

Construction companies noted that improving business conditions and greater confidence in the economic outlook had boosted spending among clients during December. Higher levels of incoming new work have been recorded in each of the past eight months

Although the rate of new order growth eased since November, the latest expansion was one of the steepest seen since late 2007. This in turn contributed to an optimistic outlook for business activity during the year ahead. Moreover, the proportion of companies expecting an increase in output levels (57%) is much higher than was recorded just before the start of 2013 (31%)

Staff recruitment has increased. Growing workforce numbers have now been recorded for seven consecutive months, which is the longest continuous period of job creation for around five and a half years. Construction companies also pointed to the fastest rise in sub-contractor usage since April 2004

Meanwhile, suppliers’ delivery times lengthened significantly at the end of 2013, as increased purchasing volumes placed pressure on stock availability. Strong demand for inputs contributed to a further rise in cost burdens in December. Latest data indicated that the rate of input price inflation was little-changed since November, and remained at a level rarely exceeded during the past two and a half years.

“The latest survey highlights that construction companies enter 2014 with the wind in their sails,” said Tim Moore, senior economist at Markit and author of the PMI. “Most encouragingly, the improving UK economic outlook is helping boost private-sector spending patterns, meaning that the construction recovery has started to broaden out from housing demand and infrastructure projects to include strong growth in commercial building work.

He added: “Higher employment numbers have now been reported for seven successive months, and these efforts to meet a sudden turnaround in UK construction demand should help keep staffing levels moving strongly upwards into 2014.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “Continued strong expansion marked an outstanding end to 2013 for UK construction, positioning the sector on a solid recovery path for 2014. Whilst housing remained the fastest-growing activity and civil engineering maintained its pace, commercial activity reported the sharpest rate of expansion since August 2007 – an indicator of the broadening out of the recovery. The positive business outlook and soaring confidence reported in December suggests this upswing will be maintained well into the New Year."

He continued: “The natural consequences of the rapid jump in construction activity during 2013 have been the continued squeeze on stocks at supplier level and the lengthening of delivery times. These pressures, alongside increasing business costs, will remain in 2014, but with hopes that they won’t prolong.”